Algeria Lifting Ban on Loans as Cars to TVs Coveted: Arab Credit

Visitors look at cars on display at the Autoexpo fair at the Pins Martimes exposition centre in Algiers. Algeria plans to roll back a more than four-year ban on consumer lending to revitalize manufacturing, reduce unemployment and enable more people to acquire goods such as TVs and cars. Photographer: Farouk Batich/AFP/Getty Images

Jan. 21 (Bloomberg) -- Idir Mekali, a 55-year-old retired
primary-school teacher in Algeria, is daring to picture himself
as a car owner.

The former Arabic language instructor, who draws a monthly
pension of 30,000 dinars ($380), wants a Renault Symbol once the
compact model starts rolling off a local assembly line in
November. First, he’ll need a loan, even if the car sells for
less than a $14,000 import.

“An affordable rate would allow us to buy a mid-range car
to share with my son,” Mekali said in a Jan. 19 interview in
the capital city of Algiers. The purchase would be a “dream
come true for the family,” he said.

Prospects for Mekali realizing his dream are improving as
Algeria, Africa’s largest natural-gas producer, plans to roll
back a more than four-year ban on consumer lending to revitalize
manufacturing, reduce unemployment close to 10 percent and
enable more people to acquire goods such as TVs and cars.

Growth in household spending fell to 5 percent in 2012, the
latest year for which government data are available, from 7
percent in 2008. Easing the prohibition may accelerate total
bank lending, which at 4.3 trillion dinars in 2012 was 64
percent greater than in 2008. Bank credit in neighboring Morocco
grew by about 50 percent in the period.

Output Slump

OPEC’s ninth-largest producer pumped oil last year at the
lowest level since 2003 as concerns about terror attacks on
petroleum facilities, corruption probes at the state-owned
Sonatrach energy group and delays in exploration for new
reserves hampered projects to bring new crude on stream. Growth
in gross domestic product slowed to 2.7 percent in 2013 from 3.3
percent the previous year, according to the International
Monetary Fund.

The IMF advised the government in November to lift the
curbs on household loans as part of a broader effort to develop
the financial industry and support private businesses. Algeria
and neighboring Libya are the only countries in the Middle East
and North Africa to ban consumer loans. Libya has put all
private lending, including mortgages, on hold as it adopts
Shariah-compliant banking rules following the revolt that
toppled Muammar Qaddafi in 2011.

IMF’s Advice

“Increased competition and better credit-risk assessment
tools would encourage banks to orient their business toward
small and medium enterprises,” the IMF said in a statement
published on Nov. 25 after it sent a team to Algeria. “The
mission advised the authorities to lift the ban on consumer
credit and develop a mortgage market.”

The government is preparing to ease credit restrictions it
imposed after personal loans swelled by 25 percent to $1.3
billion in 2008, according to the Association of Algerian Banks
and Financial Establishments, or ABEF. The halt in lending
coincided with a 43 percent drop in Algeria’s foreign currency
earnings in 2009, when fuel prices fell from a record amid the
global financial crisis.

The nation supplies gas to Europe at prices tied to crude,
which traded yesterday in London at about $106 a barrel.

President Abdelaziz Bouteflika’s government announced plans
last month to let banks finance the purchase of goods produced
at least partially in Algeria. It linked the decision to the
creation of a credit bureau to monitor consumers’ debts. This
step to contain credit risk should translate into lower interest
rates on consumer loans compared with 2009, when rates reached
10 percent, said M’hamed Hamidouche, a World Bank consultant and
economics professor at the University of Blida, near Algiers.

Life Imprisonment

The new Credit Bureau is responsible for collecting data
from Algeria’s banks on loans to consumers and companies,
including overdue debts.

The government began tightening its control over bank
lending after the collapse in 2003 of Khalifa Bank, the
country’s first private lender, which offered double-digit
interest rates to attract deposits. The bank used the funds to
set up an airline and other businesses owned by its founder.
Abdelmoumene Khalifa was later convicted of fraud and money
laundering and imprisoned last month for life.

The General Union of Algerian Workers, the country’s
largest union known by its acronym UGTA, said an easing of the
ban on consumer lending would aid manufacturers and curb
unemployment, which affects 20 percent of working-age people
younger than 35, the newspaper L’Expression reported Jan. 12.

Election Looms

Unemployment is a concern for 76-year-old Bouteflika, who
has held power since 1999. Last week, he set April 17 as the
date for the next presidential election, without indicating if
he would seek a fourth five-year term as requested by his
National Liberation Front party.

An easing of the lending ban “is definitely a pre-electoral measure to boost the legitimacy of the regime at a
critical juncture,” Riccardo Fabiani, a London-based analyst at
Eurasia Group, said in an e-mail yesterday. “Algeria has a
looming current account problem, as import growth is fast
outpacing exports; in this context, constraining consumer
lending makes sense. However, it has been completely
ineffective, as imports and domestic demand have grown
nonetheless, often bypassing this ban.”

A partial removal “will buy the government some sympathy,
as Algerians regain access again to credit for their purchases,
and could boost somewhat domestic production,” Fabiani said.

Renault Cars

Renault SA plans to open an assembly plant south of the
Mediterranean city of Oran in November, producing 25,000 Symbol
compacts a year there.

“I hope the assembled one is cheaper,” said Mekali, the
retired teacher and would-be auto owner from Algiers. “The one
that’s now imported costs about 1.1 million dinars,” or
$14,000, said the father of five.

Renewed lending should also benefit makers of electronics
and household appliances, the UGTA said. Among the international
companies producing under license in Algeria is Samsung
Electronics Co., which sells washing machines, TVs, air
conditioners and refrigerators under the Samha brand.

UGTA Secretary General Abdelmadjid Sidi Said hopes the
renewed consumer lending will help save the country’s textile
industry, which faces competition from cheaper Chinese imports,
L’Expression reported last week. The government will compile a
list of goods that consumers can buy using bank loans, Trade
Minister Mustapha Benbada told reporters on Dec. 18.

“There’s a consensus for restoring consumer credit to
promote goods produced locally, in total or in part,” said
Abderrahmane Benkhalfa, an independent financial adviser and
former general secretary of ABEF, the bank association. “A key
element is to make sure that households don’t become over-indebted.”